Wednesday, January 24, 2018

Here’s why college is so expensive

TL;DR - College is so expensive in the
United States because federal aid programs intended to make college more affordable have
been structured in such a way as to write colleges a blank check – to charge
whatever they please without increasing the cost to consumer at all – thereby removing
cost-consciousness among students and parents, and eliminating the competitive need for
colleges to undercut one another’s tuition prices.

One of the most important of those efforts was the creation of FAFSA in 1992,
which went digital/online in 1997.FAFSA
basically works by calculating an estimate of your “expected family
contribution” based on your parents’ ability to pay, and then the government
agrees to pay the remainder of your tuition beyond that amount.FAFSA combined with Pell Grants and several
other federal programs which today offer over $120 billion in federal loans and
aid to offset the cost of college tuition. In theory, this was supposed to
ensure that nobody was denied a college education due to inability to pay,
thereby increasing the number of young Americans able to obtain a college
education, rewarding hard work in K-12 education, enriching citizens’ private
lives, increasing informed democratic participation, and improving our
workforce productivity.What could go
wrong???

Well, here’s a graph showing what went wrong, starting around 1992:

And here’s
a few more, showing how it accelerated once the FAFSA program went online
in 1997.That the time college prices
started increasing so exponentially coincides with the time FAFSA and other
programs came around is not a coincidence.

What happened? In effect, the government’s promise to cover whatever tuition
exceeded a family’s ability to pay removed the need for colleges to price their
product in rough accordance with their consumers’ ability to pay.So if the average family could only afford to
pay $15,000 a year, previously colleges couldn’t charge too much more than that
and expect to attract customers.But
when the government promised to cover whatever the average family could not
afford, colleges quickly realized they could charge $25,000 a year and get
$10,000 of free money from the government per student – and also, that there
was theoretically no upper limit to the amount of money they could charge.As such, FAFSA became a way for university
administrations across the country to seek massive rents from American
taxpayers by incrementally increasing tuition each year.

What’s more, no politician could challenge this boondoggle, because if they
did, they’d be labeled as anti-education for trying to cut federal aid towards
it (and everyone knows education
is infinitely important regardless of cost, right?).And this same tendency to value education as
a penultimate public good worthy of ever-more public dollars enabled even
non-profit college administrators to justify increasing tuition to the moon.More revenue meant more resources invested
towards the education they valued so dearly, for purely selfless reasons no
doubt.

The ripple effects extended beyond higher tuition.Since the cost to student was now capped at
their parents’ ability to pay, students no longer had to shop for colleges
based on which was priced most reasonably: in many cases, the cost to them
would be the same either way.As such,
competition between colleges to attract the best students instead became a
spending race for who could offer the most attractive frills and amenities,
regardless of cost.That’s why colleges
have “leisure rivers.”That’s why they
have multiple massive gyms and Fitness Centers, and host concerts, and spring
fairs, and spend tens of millions of dollars on the best football coach, and
sponsor hundreds of clubs and cafes and health facilities and Greek life.It’s why colleges compete to offer ever-more
luxurious dorms. It’s why they have free study abroad and ever-more expansive
dining options. It’s why Hopkins is constantly doing construction and
renovating perfectly serviceable buildings less than 30 years old: they all
have more money than they know what the fuck to do with!!!European and Asian colleges don’t spend on
that stuff because it’s inefficient and not really related to education.College in the US has become an all-inclusive
resort where much of what you pay for has nothing the hell to do with the
actual instruction you receive in the classroom (there is academic evidence for students picking colleges
based on these frills too).

Long story short, federal intervention in the market was deliberately designed
to drastically increase the demand for higher education, while limits on which
universities receive federal accreditation have prevented supply from keeping
pace, and unintended side effects of the interventions have wiped out the need
for colleges to offer lower prices.Basic economic theory tells us that higher demand + fixed supply +
decreased competition = much higher price, and the statistics have confirmed
what intuition would suggest.

Here is a list of 10 scholarly
articles with empirical evidence for this theory: